Types of Stock
You may be familiar with common stock or preferred stock. These types of stock are issued by a corporation when it organizes. In exchange for a share of stock, the shareholder receives an ownership interest in the corporation. Depending on the type of stock, the shareholder may receive rights to vote for the Board of Directors and on other important matters. In addition, the shareholder shares in the success of the corporation through the receipt of dividends and stock appreciation. Now you may wonder, what is treasury stock?
During the regular course of business, a corporation may decide to buy back some of the stock it previously issued. The shares of stock that are reacquired and set aside for future use are called treasury stock. This stock is not available for purchase by investors, but it has not been canceled or retired either. In addition, stock that has never been issued, even though it has been authorized, is classified as treasury stock.
Unlike common stock, treasury stock does not offer voting rights, earn dividends or have any claim to assets in the event of company liquidation. It can be held in this manner indefinitely. In addition, the corporation can decide to resell, cancel or retire the stock at anytime.